STEVE HENN, HOST:
Just so you know, this podcast includes some foul language.
Frederick Hutson had this entrepreneurial itch pretty much from the day he was born. In high school, we had a lawn mowing business where he got other kids to actually mow the lawns. He did the same thing with a car washing business.
ROBERT SMITH, HOST:
The guy was a natural. He went to the Air Force, moved to Las Vegas, started a window tinting business, and then he bought a mailing center - one of those off brand UPS kind of stores in Las Vegas. And this store was key to his biggest business plan yet.
HENN: He was going to deliver marijuana all over the country using UPS and FedEx.
SMITH: What could go wrong?
HENN: What could go wrong?
FREDERICK HUTSON: I'm at the mail center and I'm just sitting behind a counter, and then I see - it's like all glass. And then I see agents coming from both sides, about 12 people from both sides. And they just all like rushed the door like with guns drawn. So they put me in cuffs and then they come in and execute a search warrant. So I say OK.
HENN: Frederick got nailed for conspiracy to distribute marijuana - five years federal prison.
SMITH: Now some guys go to prison and they find religion. Some guys go to prison and they work out a lot, get massive biceps. But remember, Frederick Hutson was the businessman, so he would spend all of his time in the prison library writing business plans.
HUTSON: So I just spent every day writing random - whatever idea - even if it wasn't even possible, feasible, I would just write a plan for it. I would write how I want to build it. I would write who I want to hire. I met white-collar guys and I would - they showed me how to write financial models. And we would get paper, tape them together - white paper like that - get rulers and draw lines and make spreadsheets by hand.
HENN: Like physical paper spreadsheets?
HUTSON: Right, right, yeah. (Laughter). Right. So it was a tedious process but I had time to do it.
HENN: He was doing what entrepreneurs do, right? He'd pick a problem and figure out a solution. But as the days went on, Frederick realized the biggest problems that needed solving were actually all around him inside this jail. Looked at from a business perspective, prison was actually an unexploited gold mine.
SMITH: Hello, and welcome to PLANET MONEY. I'm Robert Smith.
HENN: And I'm Steve Henn. Today on the show, a businessman goes to prison and decides he's going to disrupt the largest captive market in the world.
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HENN: When you're doing time in a federal prison, there is no shortage of business problems. Frederick Hutson saw them everywhere every day.
SMITH: Yeah, the first thing you notice in prison is there is no competition. If you want to buy soap, there is only one place to get it - the prison commissary. And it is way overpriced. I looked up a price list online for federal prisons. A Pepsi - a can of Pepsi costs $2.60.
HENN: And Frederick says that's nothing compared to the payphones. I mean, those guys can charge whatever they want. If you want to make a call from jail, there's just one phone company to deal with.
HUTSON: Basically when I was in the county jail, I was making calls out but it was expensive. It was, you know, at the point where Tanya, who was my girlfriend the time, she was like I can't afford it. Every time you call me it's $50. So I stopped calling as much.
HENN: Every time you called her it was $50? How long were you talking?
HUTSON: Right. We was talking - I think the calls were like 15 minutes. And the reason why the cost 15 minutes...
HENN: Fifteen minutes for $50?
HUTSON: Right. It was very expensive, very expensive.
HENN: The phones are a drag, but the thing that really drove Frederick nuts was this photo problem. He wanted his girlfriend to send him a photo. But inmates aren't allowed to have cell phones or Internet access. So for his girlfriend to actually send him her picture, she'd have to go and print it out at a drugstore, put it in an envelope, and mail it to the prison. And that didn't happen.
HUTSON: One of the main things that I used to be jealous - I would be laying on my bunk and I would hear mail call. And they will call off names. My name's never called. And it's just frustrating because I never get mail.
SMITH: Frederick lies there on his bunk mulling over this problem. And then he goes to the library with these blank pieces of paper and pencils. And he starts thinking about the photo problem like a businessman. What if there were a company that could make this whole photo thing easier - a website or an app? Some technology that would allow someone to take a picture, hit a button, and then poof. That printed photo would automatically get sent by mail to prison. Kind of like Shutterfly, but for convicts.
HENN: So this whole idea basically started because you wanted to get pictures from your girlfriend, right?
HENN: Naked pictures?
HUTSON: (Laughter).Well, you can't get naked pictures in prison, but, you know, the more risque the more happy you are, you know.
HENN: Forget pot delivery, this was going to be his perfectly legal million dollar idea. He even came up with a name for it - a kind of 2010 name - Picturegram.
SMITH: Picturegram. Now there wasn't much he could do about building Picturegram while he was still behind bars, but when he got out in September of 2011, he brought all those business plans he had developed with him - all those paper spreadsheet and smudged lines. And he headed out for - OK, normally if you're a tech entrepreneur, you would go to Silicon Valley, but Frederick was not. He was a convicted felon out on parole. His destination was a halfway house in Tampa, Fla.
HENN: And to hear him tell it, you couldn't imagine a worse place to incubate a tech company. At this halfway house, every aspect of his life was controlled. He didn't have the luxury of uninterrupted time in that prison library. He had to constantly check in or check out. And they kept saying, you have to get a job. And no, starting your own company, that doesn't count.
SMITH: So he started to build Picturegram on the sly. Initially his plan was to hire a couple of guys, put up a website, print some photos. So he calls this photo processing lab.
HUTSON: And he said, but, you know, we'll set you up a call with the CEO and all his people. So then they set up this call - my first conference call. I'm still living in a halfyway house. And the million dollar...
HENN: How do you take a conference call in a halfway house?
HUTSON: I had to sneak my phone in. So they had a rule, which is stupid, but you can't have a phone. They didn't let you have a cell phone. So I used to sneak my phone in and I would be in my bunk laying to the side and on this conference call with our vendor and the CEO and the sales guy. And basically I have to pitch him.
HENN: And you're doing this while laying on a bunk speaking quietly in a halfway house.
HUTSON: Right. With a room for probably - eight other people in this room, so...
HENN: How did you make that pitch?
HUTSON: It actually came up because I told him - I said I'm looking to build an app that a lot of people send pictures. They wasn't impressed by that, you know, there's hundreds of those already. What are you going to do that's different? And I said, well, we're going after inmates and there's really no service that allow people to send photos to inmates. And we're going to be the first and we're going to be the best because we have a unique way to access them and we have a way to market to them. And then he's like, well, how do you know this opportunity exists? And I was like, oh [expletive]. What am I going to tell him, right? 'Cause I'm worried that he's going to say no if he knows that I've been to prison. But there's no way for me to hide it because I have too much inside information. So I take the leap and I tell him, I said, well, actually I know because I did four years in federal prison - almost five years in federal prison for distribution of marijuana. And the phone was just silent. So I'm not - I don't know which way it's going to go. But then the CEO said, you know what? This is the most interesting thing that I've heard. Let's do it. I'm excited about it.
HENN: But getting a printer guy on board was just one of a bunch of problems Frederick needed to solve. He needed to figure out how he could get out of the halfway house and start a business. He wasn't supposed to be doing this.
SMITH: And there's a problem of finding investors. I mean, that pitch may work for the printer guys, but once you're going before people who want to give you money, saying I just spent the last five years behind bars is perhaps not the best pitch.
HENN: Right. So Frederick had one advantage. He had a good friend from the Air Force, a guy named Alfanzo Brooks who lived in Tampa, liked him and wanted to work with him. So they decided to found this business together. They start asking friends and families for money, like a couple thousand dollars here, a couple thousand dollars there. And then Alfanzo actually hires Frederick - officially he gives Frederick a job. It just happens to be a job at this company they're founding together - Picturegram.
SMITH: So they have the seed money.
HENN: Check. Just, you know, some of it.
SMITH: They have the technology. The printer guys are set.
SMITH: And at least technically he's obeying all the rules of the halfway house.
HENN: Technically yes. Check. But of course, this is really only half the battle, right? He's spent all this time trying to overcome the barriers that being a convicted felon threw up in his path. But he still faces all the classic problems every other entrepreneur faces, right? Like how do I reach my customers? How are they going to pay? Do people want this? Will it work?
SMITH: The only way they could figure this out was to try it. So in 2012, they built the website. They were ready to put out their first ad, get their first customers. But because this whole thing was aimed at prisoners, the whole advertising situation was pretty low-tech. They basically had a postcard - a picture postcard that they mailed out to 500 inmates - a list of inmates that they found on the Internet somewhere.
HENN: The ad copy was pretty simple.
HUTSON: We said someone wants to send you a picturegram. And to have them send it to you, go to this website and that was it.
HENN: Now some of these postcards had a picture of a mom cooking dinner. Some had pictures of kids. Some had pictures of attractive women. But every postcard offered one free picture sent through the mail if their loved ones set up an account.
SMITH: So basically it's just junk mail.
HENN: Yeah. It's absolutely junk mail. Standard junk mail.
SMITH: And you've got to think for a second what it would take for this junk mail to actually be effective. I mean, a prison has to get it. A prisoner has to read it, not throw it out. Then the prisoner has to like wait in line to make a phone call, call their loved ones, say hey, here's this website. Go to this website, explain the whole process, and then that person - the relative - has to go online and actually send a photo.
HENN: And, you know, a normal piece of junk mail gets a response of like 1 percent. So if you send out 500 postcards, you could expect maybe five people to respond. But remember, Frederick Hutson knew something most people don't. Inmates love mail.
HUTSON: All of a sudden, like two - three days later, all these orders started coming in. People started shipping photos.
HENN: Out of that first batch of 500 postcards, they got something like 135 paying customers. The response was just nuts.
SMITH: And it was this sort of revelation for Frederick because all along he'd been thinking about prisoners and the problems of being in prison. And he thought of this website as a service for inmates. But as he started to see these responses, he thought no, of course, like the real customers are the families. In all these responses there are mothers and fathers and brothers and sisters. And in a weird way, it means as much for them to be able to send a photo as it means for an inmate to get that photo.
HENN: I talked with some of the relatives who use this service. And it's actually pretty heartbreaking how much they value just the tiniest bits of contact. Yvonne Yaugabok lives in St. Petersburg, Fla., and her son Johnny is doing a 15 year stretch for armed robbery. Now he's been shipped to Indiana. He's now in South Carolina. Yvonne, you know, she doesn't have much money. She's never been able to afford to visit. So one of the only ways she stays in touch is sending pictures through this service.
What does your son - what does Johnny think of the photos that you send?
YVONNE YAUGABOK: Oh, he love them. He love them. Oh, he loves them.
HENN: Does he have a favorite picture?
YAUGABOK: Yeah, me standing at the stove. (Laughter). Cooking. Yeah. He loved to see that one. He love...
HENN: What were you cooking?
YAUGABOK: Oh, boy. I don't know. I probably was making some meatloaf, collard greens and macaroni and cheese, something like that that day, On Sundays, I cook a lot. And he always tell me on Thanksgiving, I ain't there, mama, but find somebody that ain't got nothing to eat and give them my plate. I said I'll do it. And I do it every year.
HENN: Frederick sent out his first postcard in 2012, about three years ago. Last week, I went to visit him at his new corporate offices in Las Vegas.
UNIDENTIFIED WOMAN #2: All right, whenever you're ready, go ahead and give me the credit card number, please.
HENN: It's a little start-up space. It's really not much more than, like, a two-story loft. And it's just packed with people. He has a half a dozen customer service reps at any given time. They work in shifts answering phone calls.
UNIDENTIFIED WOMAN #2: And the expiration date.
HENN: Frederick has, like, your start-up uniform, you know, T-shirts jeans. And he is busy - cell phone on his ear.
HUTSON: Hold on. Excuse me. Hey, Daniella.
DANIELLA: (On phone) Hi, Frederick. How are you?
HUTSON: Hey, we're on our way. I'm glad you texted me because I completely forgot to bring the check. So I had to go back and get the check. (Laughter) Oh, yeah. Perfect. Yeah. We're coming. Yeah, we'll be there in probably about five minutes. Alfanzo's is getting the check now. All right, thank you. All right, bye.
HENN: That check, it's for new office space - bigger office space. And they need it because they're not just sending pictures anymore. Frederick's company has built this giant database of all federal prisoners in the country. And they're using it to sell all sorts of services. They started a telephone service that gives families local numbers so they don't have to pay those sky-high prison long-distance rates. And they're growing fast.
SMITH: They've even ditched that old prison name - Picturegram. The company has something that feels a little bit more 2015 - Pigeonly. Pigeonly.
HENN: Like carrier pigeon.
SMITH: Like carrier pigeons.
HUTSON: I travel a lot so I like traveling. And no matter where I go, even when I was in Japan most recently, there's pigeons there. No matter where I go, there's pigeons. And I notice how pigeons are so common that we never pay attention to them, even though they're all around us all the time. And that's kind of how I see our market a lot of times is that there's this market that's here and it's present, but nobody's really paying attention to it.
SMITH: Kind of like prisoners, he says, kind of like ex-cons.
HENN: Or their families. And Frederick has raised a lot of money for this business now. He has $3 million of investment from venture capitalists. He's out there right now raising more. And investors love this story of this ex-con made good; this guy who went out after going to jail and built a business to serve people like him. You know, if you think about it, none of this would have been possible, none of it would've happened if he hadn't gone to prison, if he hadn't made this huge mistake, broken his mother's heart. So I had to ask him...
Do you think going to prison was worth it? Do you think what you did was worth it?
HUTSON: Oh, man. (Laughter). You always ask good questions. I would say the people that I hurt, it wasn't worth it. But what I've been able to turn it into is definitely worth it. I don't know if I would've grown up as fast as I've grown up or matured as fast as I've matured without the experience and without the conditions that I lived in for close to five years. I don't know if that would have happened in the same speed. I don't know if my life would be on the same track that it is on now had I not experienced that. But I was given an opportunity. I was given an opportunity to turn something around and make an impact. And if I squander that, then, you know, not only am I letting myself down, my family - who went through all that, it's like they didn't go through all that for anything at that point. So having taken them through so much pain and hurt, I have to make this successful at this point because - or else it was all for nothing.
HENN: It's not like Frederick can ever forget what he did. You know, recently, he went to rent a new apartment here in Las Vegas. And sure enough, right there on the application form, there was this box. Are you a convicted felon? He had to answer yes. So here he is. He's raised $3 million. He's built a business. And the landlords require that Frederick Hutson's dad sign the lease instead.
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SMITH: And now that you're done listening to PLANET MONEY, may I recommend that you check out the StoryCorp podcast. It features these amazing, emotional, unscripted stories about real life. I highly recommend it. It is StoryCorp. And you can find the podcast wherever you choose to get your podcasts. Our producer today is Phia Bennin. I'm Robert Smith.
HENN: And I'm Steve Henn. Thanks for listening.
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